By Brian L. Milne, Refined Fuels Editor, Telvent DTN
Wholesale gasoline prices continue tumbling, down nearly 50cts from the start of May after another week of double-digit declines across most metropolitan markets nationwide through May 24. The drop in wholesale values is gradually filtering through to retail outlets, offering a savings for holiday travelers this Memorial Day weekend.
AAA sees a 5.8% jump from last year in holiday roadway travelers this Memorial Day, with 28 million Americans planning to traverse the countries’ highways. The travel and roadside service provider, among other things, tells us that 87% of all vacation travelers this Memorial Day weekend are choosing America’s roadways.
Meanwhile, retail gasoline prices nationally have peaked early in 2010, climbing to a nearly 19-month high at $2.905 per gallon on May 10 for regular grade. Since then, pump prices have fallen, but there’s a lag in the savings pass through from wholesale to retail markets. Moreover, consumers shouldn’t expect to reap the full discount from wholesale prices.
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According to John Felmy, chief economist for Washington, D.C.-based American Petroleum Institute (API) – an industry group for the oil and natural gas industry, 69% of the savings from the wholesale market will gradually work their way to your local gas pump. Before crying foul, Felmy notes the higher production costs in making summer gasoline, which must meet stricter environmental regulations during the seasonally hot season to reduce the release of harmful emissions into the atmosphere.
As demonstrated so far this May, markets can move lower much faster than they travel up. The market adage, “Sell in May and go away,” has taken on new meaning in 2010, as debt woes in Europe shakes investor confidence globally. Already a laggard, Europe is now seen slowing the world’s global expansion pace, while the market also worries over the impact of euro-zone debt-laden countries infecting U.S. interests.
The uncertainty is broad-based, as the huge pile of debt in Europe and the U.S. is viewed as an issue that could hobble economic prosperity for many for years to come. May has included panic selling already, and greater losses in the stock market are being forecasted. This will impact oil and gasoline prices.
Oil prices followed the stock market higher from March 2009 through to May 3, with market participants using the stock market as a forward indicator for economic growth. An expanding economy uses more energy, so this link suggested higher demand for gasoline and diesel fuel. However, expectations ran well ahead of bearish market fundamentals – abundant supply and tepid demand, which is now being analyzed with new reverence.
The trend is pointed lower for gasoline prices near term, but the decline will be limited. The markets are fickle, and the U.S. economy continues to grow. Yet, American drivers are likely to see cost savings at the pump compared with recent highs running through June to Independence Day this July 4, but one holiday at a time.
About the Author
Brian L. Milne is the Refined Fuels Editor for Telvent DTN-a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for more than 14 years as an analyst, journalist and editor. He can be reached at [email protected]